Islamic Accounting And Business Practices Accounting Essay

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This paper discussed about Islamic accounting means the concept of accountability in Islam [taklif]. Allah control Man to give back the entrusted things to whom they are due. Therefore, Man is accountable for the religious aspects and also for social, business and contractual dealings.

The problems in traditional financial accounting are inadequate and incomplete records. If the good accounting information is complete, it can provides intended users with all the necessary information to fulfil information needs and requirements. However, it's also create problems in accounting system. They must including all relevant information in order to provide accurate information. From my point of view, traditional accounting emphasizes on users requirement of information while Islamic accounting emphasizes on accountability of the accountants in disclosing the information.

The entity concept which states that the firm and its owners are separate entities and one firm is separate from another firm because the owners are not liable for the company's debt at the time of bankruptcy but have the rights to residual profits which is unlawful and similar to gambling. This concept was disagrees by Islamic Shari'ah. If the owners become bankrupt, then the liabilities may be distributed to their successors or legal inheritors. From my view, entity concept is needed to record the business's transactions separately and to distinguish them from the owners' personal transactions.

As conclusion, from Islamic perspective stated that accountability is a basic constitutional concept in the Muslim society and belief. They have their own accounting system practice in recording and cimmunicate the transactions.

6) The Development Of the Conceptual Framework For Accounting For Islamic


The emergence of Islamic banks and financial institution and the specialist in Islamic Shariah and accounting have led them to seek the most appropriate means to provide reliable and relevant information to users of financial statement of organizations. According to Stauton 1984, different societies have different worldviews and values, therefore, a symmetrical conceptual framework may be difficult to achieve. From my point of view, some societies are emphasizes on the principles of Islam and less emphasizes on the objectives of financial reporting, the proposition of accounting and definitions of accounting principles from Shari'ah principles. Thus, the different worldviews of Islamic perspective affects the information needs of an Islamic community that are different from those of a capitalist community.

From Islamic perspective, there are at least three classifications of terminology hierarchy referring Kitabul Taarief :

1. Asl (foundation, eg. the compliance of Shari'ah Islamiah)

2. Mabda (principle, eg. halal mu'amalah, truth and fairness in the

stewardship reporting, zakat focused reporting

3. Kaidah (rule)

In addition, some accounting principles maybe misinterpreted or interchangeable in the categorization of conceptual framework of accounting, but, these three classifications can not be interchangeable because each classification has its fixed position.

Baydoun and Willet (2000) (Zuhaili, Muhammad. 2003) stated that the focus is on God and the society but not the individual demands, a social accountability perspective but not personal accountability from the Islam perspective. Adnan & Gaffikin (1997) (Zuhaili, Muhammad. 2003) strongly suggest that the primary objective of accounting information is to giving the satisfaction of the accountability to God which is paying Zakat and to seek Allah's pleasure and not focus for material only. From my point of view, it is as a whole, not on individual. Thus, it is not reliable to individual shareholders and creditors to make decision usefulness. It is for primary users of shareholders and investors.

Other than that, SFA No.2 adopts unit measurement concept. When setting financial rights and obligation, the changes in purchasing power of money should be ignored. This concept is very important in Islam because it sacrifies the value of honesty and fairness. Ahmed (1991) (Zuhaili, Muhammad. 2003) states that money as a unit of measure is incredible from Islamic perspective in an inflationary environment. From my point of view, money as a unit of measure is reasonable because it is the most relevant currency in the base money unit. The adjustments on the basic financial statements not only depend on the changes in its general purchasing power.

As conclusion, we should understand and emphasizes on the needs of conceptual framework. Thus, Islamic accounting body (AAOIFI) should have its original and uniform conceptual framework, further and deep researches are needed in order to redefine and reproduce the conceptual framework that derived from Shari'ah Islamiah.

7) Towards Good Accountability : The Role of Accounting in Islamic Religious


This paper discuss the issues of accounting and accountability in religious organizations, specially in Islamic religious establishments, on the conventional meaning and concept of accountability, principles of accountability within the Islamic framework, differences between the Islamic and conventional view of accountability.

The expansion beyond the Arabian Peninsula encourage the development of a mechanism to ensuring accountability for all business transactions and for compliance with Islamic law. From Islamic Principles, every act of believers must comply ethical standards which define what is true, fair and just, the nature of corporate responsibilities, the priorities to society and accounting standards.

In Islamic religious organizations, there are less developed in accounting practices. Furthermore, accounting practices are not performed in accordance with the requirements of their religion which are to be fair, and honest towards each other.

As conclusion, Islamic religious organizations need to think about how they operate and put Islamic values in place to avoid such weaknesses.

8) Accounting Policy Choice Within The Shari' Ah Islami'Iah framework

This paper discuss the relation and implications of conventional accounting principles to Islamic financial institutions (Baydoun and Willett, 1994; Gambling and Karim, 1991) (Ros Haniffa and Mohammad Hudaib), the problem of harmonisation of international accounting standards in Islamic countries (Hamid, Craig and Clarke, 1993; Karim, 2001), a proposal for the formatting of Islamic corporate reports (Baydoun and Willet, 2000), a philosophical review of the ethical construction of accounting knowledge and the use of Shari' ah Islami' iah for guidance in the development of accounting theory (Haniffa and Hudaib, 2002) and accounting policy choices in a riba-free environment (Mirza and Baydoun, 2000).

In Islamic perspective, the economic rationality, concentrating on maximising shareholders' wealth and weighing the costs and benefits of producing accounting information are often used to make decision. Besides that, the firms also likely to minimise the costs associated with contracts. This costs affects the firms' accounting and reporting policies.

Furthermore, muslim managers must strive to provide excellent lawful products or service to society to demonstrate responsibility and accountability to Allah, provide relevant and reliable information regarding all lawful and unlawful activities to demonstrate transparency in business activities.

On the other hand, the valuation method promoted to increase zakat payment above the threshold stipulated by the Hadith. The computation is based on assets rather than income. Thus, historical cost method have been used if stewardship is concerned. Why the historical cost method preferred? This is because it reflects asset values at the time of acquisition and the contracts are written in historical cost numbers. Besides that, it also less costly and simple to understand and use. In contrary, the weaknesses occur in the historical cost system such as allocation problem and conservatism. In summary, Islamic accounting system use both historical cost and market selling prices.

From Islamic view, disclosure of accounting means disclosing information that would aid economic as well as religious decision-making and the information have to be relevant, objective and material. Full disclosure means disclosing any information deemed relevant and should be rightfully given to members of the umnah to facilitate their economic and religious decision-making. While the 'materiality' relates to any information will indicate justice in valuation and fulfilment of the rights of Allah, society and individuals concerned.

As conclusion, Islamic accounting system use historical cost for asset valuation to satisfies the stewardship objective. And use market selling prices to calculate and paying zakat. Islamic managers have to adopt the policies comply with requirements of Shari' ah Islami' iah.